Can Clean Energy Boost Global GDP?

The world economy continues to be in a state of uncertainty, and how to spur growth remains a hot political and economic topic. The role that green infrastructure has to play in this growth should be a considerable one according to some experts and analysts.

The New Climate Economy, an international initiative which focuses on how countries can achieve economic growth while reducing climate change risks, believes green infrastructure is a crucial feature of achieving growth.

The group envisions that green energy sources have the potential to create sustainable growth and eliminate poverty.

As the current infrastructure emits 60 percent of the world’s greenhouse gasses, a strong effect on climate change is possible.

Overall, the world is expected to invest £90 billion in infrastructure in the next 15 years the report states, which will also accommodate higher growth and structural change in developing countries and emerging markets.

In total, the New Climate Economy expects that energy related structures will account for 28 percent of infrastructure spending, from now to 2031.

The report also looks at how to transform the financial system. As 72 percent of global funds that are directed to climate change are domestically sponsored, domestic regulatory policy has to be bold in return, and external finance should be encouraged as a catalyst for national funding.

Policy innovations for the financial structures are highlighted in developed countries, in how they are aligning themselves with sustainability projects.

Conversely, the report warns how private financing of infrastructure that is high-carbon, and not climate-resilient, significantly outweighs private flows to sustainable infrastructure.

In response, action by regulators and policy makers in the financial system is necessary to reframe incentives to how potential investors assess the risks for clean energy projects.

Also, an interesting statistic from the report, revealed that they expect two thirds of the global population to be living in cities by 2050.

This highlights how important urban structures will have to be in terms of sustainability, requiring a positive relationship between local governments and private investors.

Last year was a landmark year for renewable energy investment, including the adoption of the 2030 Agenda and the Sustainable Development Goals (SDGs) in September. World leaders at the UN agreed on 17 SDGs to be implemented over the next 15 years and supported the milestone Paris climate change agreement.

The International Energy Agency supports the idea that last year was an apex year for renewable energy, with their inaugural World Energy Investment Report finding that renewable energy was the largest source of power investment globally. Total investment reached $313 billion, accounting for a fifth of the total energy spending last year.

Recently however, Bloomberg New Energy Finance has calculated that investment in renewable energy has fallen by 43 percent for the third quarter year on year, with the lowest amount of spending since the first quarter of 2013.

One of the major reasons for the decline was that financing for large solar and wind energy plants sank, as incentives for clean energy and costs were also cut by central governments

Charles K. Ebinger, a Brookings Institute senior fellow for foreign policy, energy security and climate initiative, opined: “I don’t think there’s any question that infrastructure can be a real catalyst for world growth, it is thought that there needs to be 1.2 trillion dollars globally of new substructures over the next 15-20 years.”

“In the energy field there are a lot of projects earmarked to be embarked upon today in the fossil fuel area, they can become stranded assets if regulations change, and gas projects are still emitting CO2.”

“I don’t doubt that wind, solar and biomass and energy efficiency of buildings will be the fastest energy growing sources over the next 20 years. The problem is they are seen from a low base in energy supplies, most investors do not see over 20-30 percent a great opportunity, you are going to need to see up to 50-60 percent of the primary energy demand.”

There also has to be an onus on consumers to change their ways, such as converting to using electrically powered vehicles.

“As for nuclear energy, I am a strong supporter, as it will be difficult to reduce CO2 unless nuclear capacity is built, unless carbon capture storage for coal makes huge strides forward.”

As ever, the huge costs involved in starting a nuclear power plant are a deterrent to their proliferation. There have been financial disasters over plants in Georgia, France and Finland, subsequently there has to be an emphasis on small modular reactors Erbinger reflects.

“Overall, the reality is in 2015 there was five to six times more money placed into coal rather than natural gas projects in countries such as India, China and Vietnam. And the reason for that is the vastly unserved population in India of around 300 million people without a light bulb.” He added

As for attracting investors, money will be found for green infrastructure if the demand is there.

The regulatory system has favoured green investors with sizeable tax credits, with the U.S. being a clear example of where the sector has benefitted from this.

Cost competitiveness is essential, sectors such as offshore wind have struggled in the marketplace, without the helping hand of subsidies.

The green bond market has also seen huge growth since 2014, as renewable energy positions itself to grow rapidly, drawing attention from Wall Street.

On the future of green infrastructure Erbinger claimed that “most analysts foresee that 85 percent to 90 percent of green infrastructure will be built in Asia, although building pipelines in India will not be for the faint hearted, neither for projects in the Middle East.”

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